A new report from the Canada Mortgage and Housing Corporation (CMHC) reveals that Canada's housing stock would be approximately 30 percent larger and prices 10 percent lower if the country's building industry had matched the responsiveness of its American counterpart over the past two decades.
Excessive Regulation Blamed
The report, released Thursday, points to excessive regulation, primarily at the municipal level, as a key factor. In the United States, fewer restrictions on zoning and land use in many metropolitan areas have allowed for more responsive housing supply. In contrast, many Canadian municipalities have building restrictions that have hindered supply and contributed to dramatic price increases.
Other Factors: Geography and Demographics
CMHC Chief Economist Mathieu Laberge notes two other key factors: geography and demographics. Major Canadian cities like Vancouver and Montreal face natural barriers such as mountains and waterways that limit construction. Additionally, Canada has fewer large cities than the U.S., leaving urban residents with fewer options to relocate for comparable jobs, which would otherwise spur new developments.
The report, based on research from the Organization for Economic Cooperation and Development (OECD), found that these barriers made the Canadian industry less responsive to increased demand during the 2006-2024 study period.
Expert Caution on International Models
Paul Smetanin, president of the Canadian Centre for Economic Analysis, cautions that international analytical housing models can be misleading because they rely on assumptions about comparable regulations and labor pools. He states the Canadian housing market is in crisis largely due to bottlenecks hindering construction, emphasizing that industry will build if market conditions are favorable.
Long-Standing Crisis
Canada's housing crisis is neither new nor a secret. Demand has been rising in most urban centers for decades as more Canadians migrate to cities and immigration climbs, but supply has not kept pace, pushing prices higher. Less than a year ago, CMHC admitted the crisis might worsen, with housing starts expected to fall in 2025, 2026, and 2027, leaving production at less than half the 480,000 units needed annually over the next decade.
Rising Costs and Taxation
Rising costs are a major part of the problem. The value of land and materials, along with wages for workers and margins for developers and suppliers, have all increased. However, the biggest cost in a new home (about 36 percent) is taxation, making all three levels of government the top beneficiary. About 70 percent of these taxes come from development charges for sewer, water, and electricity, land-transfer taxes, and HST. The remaining 30 percent is from indirect income and corporate taxes paid throughout the supply chain but ultimately passed on to buyers.
